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Housing crisis? What crisis?

Is there a housing crisis in the UK? If so, would building more homes fix the problem?

This debate has been sparked by Ian’s blog arguing that house prices are determined by the supply of credit more than the supply of housing (I’m probably summarising his piece poorly, so you should check it out yourself).

This argument has been met with several responses. These highlight the fact that ‘housing crisis’ has become a useful slogan for a range of interests who disagree both on the nature of the crisis and the reasons for solving it, but are united in believing that there is a crisis and that an increasing in the supply of new houses would solve the crisis.

We can usefully distinguish between a few different interpretations of the housing crisis and ask whether each would be solved by building more homes.

Rising numbers of people who are homeless and falling rates of home ownership are probably not best solved by building new houses.

Whereas, overcrowding, the very high rents paid by some households and the failure of high productivity places to expand are probably best solved by building new houses.

However, in these cases the solution is not as straightforward as building any type of housing and in fact probably come into tension. For example, overcrowding is probably best solved by building more council housing whereas high productivity places probably want to build more private housing.

1. Homelessness

The number of people who are homeless (either sleeping rough, in temporary accomodation or ‘hidden homeless’) is up dramatically since 2010 (see e.g. here or here).

If some new housing was allocated to homeless households this would reduce the amount of time these households spend being homeless. However, benefits changes and security of tenure would be more effective ways of stopping people becoming homeless than building new homes

Overcrowding is much more common in social and private rented accomodation. If there were more houses these households could move into these new houses. However, that relies on the new houses being of a certain type and these households getting priority

3. Generation rent

The percentage of households who own their own home is declining. This trend is particuarly prevalent amongst younger people (see e.g. here).

Kate Barker argues that the impact of housing supply on the cost of buying houses is limited and other factors (e.g. interest rates) have a bigger impact. To significantly reduce house prices through a housebuilding programme would require an enormous programme.

4. Housing headwind

Over the past couple of decades there has been an increase in both the number of households who rent privately and the percentage of households who are paying more than a third of their income for housing costs (see e.g. here)

Not all households have seen their rents dramatically increase. The situation is localised. A large increase in the supply of housing in areas with high rents would reduce rents in those areas

5. Productive places

Areas such as London and Oxford have high productivity and have been creating jobs in the past few decades. If they built more homes, more households could move to these areas and get work in these sectors. However, these areas have not created new homes at the rate that some would like (see e.g. here).

If there were more houses in places like Oxford, then more people could work there.